Confusion

Seems to me if the volatility in the value of fiat currency is the problem, then these people should be putting money where their mouth is by buying up a different fungible good.Like… I don’t know… gold?

@Rob: The argument was “It’s because of A that we need the Gold Standard” and “not A” happenned and NOW the same people are saying “It’s because of either A or not A that we need the Gold Standard.” It’s non sequitor.

( I believe the reason I have a sore throat right now is because the United States is not on the Gold Standard—Or perhaps because WordPress hates America 😉 )

Why not put all your savings into gold instead of a bank? If the Gold Standard is a valid argument you should do amazing well because nearly everyone is making the opposite bet to the point that they’re willing to lose money let the government hold it.

Personally, I don’t really care if international transactions are done with U.S. dollars as the reserve currency or something based on a scarce yellowish transition metal—all forms of money are representational anyway. All this gold standard business is most definitely a red herring. It’s like saying that the reason the ship is sinking is because the life vests were the wrong color.

One wonders why certain people feel a certain need to blame a mechanism like fiat currency for a problem that is clearly attributable to the simple motivations—greed under deregulation. (Here’s a revelation: maybe we’re in trouble because we were so damn self-centered and rationalizing and didn’t give a crap that others were the same!) Now, I don’t mean regulation will solve the problem, but I certainly don’t mean that a completely orthogonal regulation (the gold standard) will either.

But, no wait! It’s the fact that we’re not on the gold standard that’s the problem! Well that and the fact that pixie dust doesn’t come out of my ass.

Because I GUARANTEE if pixie dust came out of my ass we wouldn’t be having the problems we are having today.

We left the gold standard because it gave us flexibility to [artificially] spur on the economy. Now we want back into the gold standard because of the dangers of artificial liquidity.

Seems like the most effective and equally impossible solution would be to abandon the quantitative dependence of wealth and desire a more qualitative approach? real wealth can only grow so quickly, any other growth in our normative wealth is either inflation or debt which screws $people over in the future.

@Wilfried Schobeiri: Nice revisionism there. Many countries have left the gold standards a great many times in history for a great many reasons. In most cases this was due to the exigencies of war—not to spur the economy, but to keep it from collapsing. In the end all countries have been about as successful at returning to this form of money as they’ve been at returning to an agrarian economy.

Nice obscuring the “dangers of liquidity” you refer to have historically and always(until two months ago) been specifically hyperinflation and not the deflation we’re experiencing (as of the last two months). Coincidence?

Please continue to ignore the fact that artificial liquidity is orthogonal to the problem we are in. Continue to blame a mechanism instead of the cause. I noticed three of the top four favorite teams in the NFL lost their playoff games over the weekend. You know why that happened? Not because they scored less points than their opponent but because the United States dollar isn’t on the gold standard!

When you imply you have a common sense solution, you ignore the reality that a any representational currency (even a “Gold Standard”) can be made unstable because it is a representation. The difference is that these instabilities are highly vulnerable to speculative attacks and arbitrage out of the control of government.

I don’t know (and neither do you) how fast wealth in the world grows. Money is representational liquidity anyway, not actually wealth. This is true even if we (or any other country) had currencies based on the gold standard. If it wasn’t the U.S. currency that would be backing every international transaction today, it’d be the Euro or some other currency not stupid enough to back their money with some arbitrary commodity.

Why stop at the gold standard? Why not return to commodity money (e.g. let’s just trade in gold coin). How about just going back on the barter system? I heard that criminals were trading Intel microprocessors at one time, why not go to a silicon standard. We can call it the “Sandard.”

Perhaps I am wrong, but my bets are consistent with my views: all my savings is currently in federally insured banks and measured in U.S. dollars.

Are your bets so consistent? Do you trade all your paycheck into gold commodities or gold futures? If I’m wrong and you’re right you’d be suitably rewarded when the dollar collapses. Which, according to you, will be both inevitable and soon.

I can only say: I agree! The gold standard is another way of simply avoiding any responsibilities by giving control of money supply to a totally random mechanism that has nothing to do with the real economy needs.

On the other hand I do understand where the frustration is coming from.

The main driver of the greed that caused institutions to seek out things like subprime mortgage backed securities was that the total global money supply devoted to savings doubled in the last decade and it had to go somewhere. I would agree with Wilfried that it is suspicious that the entire money supply could have doubled in the last ten years.

The fed during those years was paying a 1% interest rate which meant that this money would be losing 2% a year if you were betting on the U.S. Dollar. This drove the market flush with cash to look somewhere else to invest.

However, there is no doubt that the crisis we are experiencing had to do with greed: people wanted AAA-rated investment vehicles without the low interest rate that the fed was willing to give at the time. Now that those vehicles (in particular, CDOs like mortgage-backed securities) have collapsed, we are seeing a major flight to currencies (especially the U.S. dollar) even though the rate is deflating their value—losing 2% a year doesn’t sound bad when you compare it to losing 50-100% of your value in a CDO.

As a condensed matter theoretical physicist specializing in non-equilibrium systems, I was trained in graduate school in the mathematics of derivatives and my advisor makes the software that most of the people used to create this mess.

I know what I’m talking about.

I sympathize where the pain is coming from, but I’m not buying the argument. I didn’t take out an ARM on a new house, buy or sell a liar’s loan, or rebundle the toxic and rate it AAA. I didn’t make it rich nor poor on any aspect of this big lie wrapped by a lack of transparency due to a lack of regulation.

The logic didn’t make common sense then. The logic of the gold standard doesn’t make common sense now.

Back then, people ignored Warren Buffet and Raghuram Rajan and their own common sense in favor of Alan Greenspan and their own greed. Now they want to ignore those same people and common sense to turn to Alan Greenspan’s new-found love of the Gold Standard as some magic pixie dust that will fix all our ills at the very time when the only thing that seems to be stable is the very currency they seek to destroy.

Terry, I think you misunderstood the intentions of my post, it was more of a jab at the weaknesses of the current system than anything else. You’re reading far further into my post than what I’m actually saying: “Now we want back into the gold standard because of the dangers of artificial liquidity,” is actually a facetious aside to all of the hyper-libertarians whose solution to the problem is “GET RID OF THE FED!!!!111oneoneoneo”

And I can understand their point: the moment you begin “creating” value that doesn’t exist without maintaining the checks that are in place to ensure the system’s integrity, the system begins to fall apart. Which can be seen in the whole housing push, push towards more liquidity and lending by the Fed during the Bush admin, etc. I don’t have to explain this, you can see it all around you.

I think moving back to a gold standard won’t solve anything, in fact it will probably be much, much more damaging than the current system. Talk about stymied growth. The only thing I can think of to fix this problem is to make sure the institutions whose job it is to maintain the strength of the system are actually functioning.
I would argue that they haven’t been.